1, current account. The change of interest rate affects the cost of enterprises, then exports, causes the change of balance of payments and finally affects the change of exchange rate. For example, the rise in interest rates and the increase in enterprise costs make the competitiveness of export commodities decline and the export volume decrease, resulting in the balance of payments turning into a deficit, which brings the pressure of depreciation of the local currency or directly leads to the decline of the local currency exchange rate.
2. Capital account. Changes in interest rates will affect arbitrage capital flows, cause changes in international payments, and ultimately affect exchange rate changes. If interest rates rise, international capital will flow in in large quantities, increasing the demand for local currency, and the balance of payments will turn into a surplus, which will bring pressure or directly lead to the appreciation of local currency.
Extended data
Adjustment of currency exchange rate:
In a certain period of time, attracting foreign investment to a certain extent will also push up the country's currency exchange rate. Of course, this is likely to happen only in countries with strong economies. Either a country's central bank puts a large amount of base money, or increasing the speed of printing money will lead to the devaluation of the country's currency, so we should pay attention to the overall operation of the central bank.
That is, on the one hand, put the base currency, on the other hand, whether to withdraw the currency for hedging in the open market business. At the same time, investors' profit expectations are also an important factor in pushing up the currency price.
For example, the previous monetary easing led to a decline in the yen exchange rate. However, the decline was too large, which made investors think that the yen had fallen to a low level and began to buy a lot of yen, which pushed up the yen exchange rate in a short time.